Don't Let Ciena's Stock Fool You

Just because the shares have had some legs, it doesn't mean the run will continue.

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Although its retreated from its 52-week highs, there's little doubt that Ciena (CIEN) has made a heck of a comeback from earlier in the year. And at $12 and change, the bulls are arguing that this could be just the beginning for the networking-equipment company.

But all things considered, the Maryland-based company simply doesn't scratch me where I itch, and so I won't be nibbling ahead of its fourth-quarter numbers (which are due out in the early part of December).

Here's my latest take on the situation:

1. Ciena's stock has done well this year, which has left its shareholders smiling and confounded many of the pessimists, including myself. In other words, I've been wrong so far. But just because the shares have had some legs as of late doesn't mean the run will continue. My sense is that the investment community will eventually pinch itself and realize that the company is expected to put up a dime a share next year in 2010, which isn't too spiffy given the shares trading in the lower double digits. Even if it put up $0.50 I'd still have some serious pause.

2. The company has missed expectations in the last three of four quarters, which doesn't give it a lot of Street cred, or give me confidence that it's about to embark on some sort of beat streak.

3. Analysts are expecting the company to lose $0.06 in its fourth quarter. Will Ciena meet or beat that number? Given its record this past year, I don't have a lot of faith. But even if it edges out the number, so what? There are plenty of other names in tech out there knocking out estimates that appear to be much better values from a price-to-expected-earnings standpoint.

4. I'd rather punch Cisco's (CSCO) ticket. It's expected to be well in the black this year and next year, too, and it trades at right around 16.3 times this year's estimate, which is $1.43. Not too bad, in my opinion. It's also beaten estimates four quarters straight, which is a pretty good record -- at least compared with Ciena.

5. I don't want to rain on Ciena's parade, but if I were long, I'd probably use this as a time to bail rather than add to my position. I just don't see a tremendous amount of value there, and there are better opportunities.

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